Bert Hochfeld | March 31, 2026 Stock Price: $1,626 | Market Cap: $82.4B | EV/FY25 Rev: 2.9x FY25 Revenue: $28.9B (+39.1% YoY) | FY25 Op Margin: 11.1% [GAAP] 52-Week Range: $1,593 – $2,645 | Down 38.5% from high
MercadoLibre is the dominant commerce and fintech platform in Latin America — the only company that simultaneously operates the region's leading marketplace, digital payments network, consumer credit operation, proprietary logistics infrastructure, and retail media business. The company delivered $28.9 billion in FY25 revenue, growing 39% year-over-year and marking its 28th consecutive quarter above 30% growth. The stock has fallen 38.5% from its 52-week high to $1,626, and currently trades at 2.9x EV/FY25 revenue — an extraordinary discount to both its own history and to any reasonable growth cohort for a company growing at this rate. The selloff is driven entirely by margin compression, which management has quantified at 5-6 percentage points of deliberate investment spend. I haven't covered MercadoLibre in the newsletter previously, but applying my framework, this is one of the most compelling risk/reward setups I have encountered in a large-cap growth company. The leading indicators — GMV acceleration, items sold growth, credit quality improvement, and advertising revenue scaling — all point in the right direction. The risk is real (a $12.5 billion credit book in LatAm economies is not trivial), but the valuation more than compensates.
I am not going to belabor the business description here — readers of this publication are sophisticated enough to know what MercadoLibre does. What matters is the structural differentiation. MELI operates across five reinforcing layers in Latin America: (1) a marketplace with $65 billion in annual GMV, (2) Mercado Pago, a digital payments network processing $278 billion in total payment volume, (3) Mercado Credito, a consumer and merchant lending operation with a $12.5 billion credit portfolio, (4) a proprietary logistics network shipping 95% of marketplace orders with 82% delivered in under 48 hours, and (5) a retail media business holding 56% of LatAm digital retail ad share and growing 67% year-over-year.
No competitor operates across all five layers simultaneously. Amazon has the marketplace and logistics ambition but not the payments or credit infrastructure. Nubank has the fintech user base (109 million vs. Mercado Pago's 78 million MAU) but no commerce flywheel. Shopee has the low-ticket order volume in Brazil but no credit book and no proprietary logistics. The integrated flywheel is not theoretical — 28 consecutive quarters of 30%+ growth on a $29 billion revenue base demonstrates it empirically. Each layer feeds the others: commerce drives payments, payments enable credit underwriting, credit increases purchase frequency, logistics enables delivery speed, and advertising monetizes the resulting attention.
The secular runway is exceptional. E-commerce penetration in Latin America remains approximately 15-20%, compared to 25-30% in developed markets. Financial inclusion is even more nascent — management noted that 60% of Argentine adults lack a credit card. Brazil and Mexico alone represent addressable retail markets exceeding $300 billion. MELI's revenue is roughly 6-7% of addressable retail spend in Brazil. This is year four of what should be a decade-long penetration story.
| Q1 FY23 | Q2 FY23 | Q3 FY23 | Q4 FY23 | Q1 FY24 | Q2 FY24 | Q3 FY24 | Q4 FY24 | Q1 FY25 | Q2 FY25 | Q3 FY25 | Q4 FY25 | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue ($B) | 3.22 | 3.55 | 3.93 | 4.41 | 4.33 | 5.07 | 5.31 | 6.06 | 5.94 | 6.79 | 7.41 | 8.76 |
| YoY % | 43.3 | 36.7 | 46.0 | 35.9 | 34.5 | 42.9 | 35.3 | 37.4 | 37.0 | 33.8 | 39.5 | 44.6 |
What strikes me about this trajectory is that revenue growth has reaccelerated from a 33.8% trough in Q2 FY25 to 44.6% in Q4 FY25 — and this on a base that has nearly tripled in three years, from $3.2 billion to $8.8 billion per quarter. The 28th consecutive quarter above 30% growth is not something you see very often in companies at this revenue scale. For context, FY25 revenue of $28.9 billion grew 39.1% year-over-year from FY24's $20.8 billion. The 3-year revenue CAGR (FY22 to FY25) is approximately 39%.
| Q1 FY24 | Q2 FY24 | Q3 FY24 | Q4 FY24 | Q1 FY25 | Q2 FY25 | Q3 FY25 | Q4 FY25 | |
|---|---|---|---|---|---|---|---|---|
| Op Margin % [GAAP] | 13.3 | 13.3 | 10.5 | 13.5 | 12.9 | 12.2 | 9.8 | 10.1 |
| Net Margin % [GAAP] | 9.3 | 9.3 | 7.5 | 10.5 | 8.3 | 7.7 | 5.7 | 6.4 |
| EPS (diluted) | 7.95 | 9.31 | 7.83 | 12.60 | 9.74 | 10.31 | 8.32 | 11.03 |
The margin story is what has driven the stock down 38.5% from its high. Operating margin peaked at 13.5% in Q4 FY24 and troughed at 9.8% in Q3 FY25, with Q4 FY25 showing a marginal improvement to 10.1%. Management has been explicit about this: they have quantified 5-6 percentage points of operating margin deliberately invested in free shipping threshold reductions (Brazil from R79toR19), credit card expansion (3 million new cards issued in Q4 alone), first-party commerce, cross-border trade, and logistics network buildout.
Full year FY25 operating income of $3.2 billion grew 21.7% — healthy absolute growth, but lagging revenue growth by 17 percentage points. The street, which had been pricing in operating leverage, got margin compression instead. EPS of $39.40 for FY25 is essentially flat with FY24's $37.69 despite 39% revenue growth. That is the entire explanation for the stock's decline.
MELI's cash flow statement requires careful parsing. Operating cash flow of $12.12 billion for FY25 is enormous, but it includes the funding of the credit portfolio. The credit book grew from $6.6 billion to $12.5 billion over FY25, consuming roughly $5.9 billion of cash. MELI reports an adjusted free cash flow of $1.48 billion for FY25, which nets out fintech working capital changes. That is the more honest measure.
CapEx of approximately $1.2 billion (annualized from 9M FY25's $916 million) reflects the logistics buildout. SBC/LTRP is modest at $252 million for 9M FY25, and share count is flat at 50.7 million — effectively zero dilution. This is unusual for a company this size in growth mode and reflects the discipline in MELI's capital allocation. They are investing through the P&L, not through share issuance.
| FY24 | FY25 | |
|---|---|---|
| Commerce Revenue | $12.16B (58.5%) | $16.3B (56.4%) |
| Fintech Revenue | $8.62B (41.5%) | $12.6B (43.6%) |
Fintech's share of total revenue is steadily increasing — from 41.5% in FY24 to 43.6% in FY25. This mix shift is important because fintech revenue carries higher incremental margins as the credit book seasons and credit card cohorts mature. The commerce side is growing at approximately 34% while fintech is growing at approximately 46% — a meaningful divergence that will continue to shift the mix.
| Revenue | % of Total | YoY Growth | |
|---|---|---|---|
| Brazil | $4.01B | 54% | 37.6% |
| Mexico | $1.65B | 22% | 44.2% |
| Argentina | $1.44B | 19% | 39.5% (97% FX-neutral) |
| Other | $0.31B | 4% | 39.4% |
Brazil is the base at 54% of revenue with steady mid-to-high 30s growth. Mexico is the most exciting market — growing 44% with a 52% FY22-FY24 CAGR and enormous runway remaining. Argentina's reported 39.5% USD growth masks 97% FX-neutral growth, illustrating the structural translation drag that USD investors absorb.
Argentina is a unique case within MELI. Its direct contribution margin of 43.9% (vs. Brazil's 20.0% and Mexico's 18.3%) is anomalously high due to outsized fintech spreads in the inflationary environment. As inflation normalizes under the Milei government, these spreads will compress. Argentina is simultaneously MELI's highest-margin and highest-risk geography.
This is where the bull case is built. The leading indicators are uniformly positive:
GMV USD acceleration (5 consecutive quarters): Q4 FY24: 8% -> Q1 FY25: 17% -> Q2 FY25: 21% -> Q3 FY25: 28% -> Q4 FY25: 36.8%
This is the single most important signal. GMV growth in USD terms has reaccelerated for five consecutive quarters, from the trough of 8% in Q4 FY24 to nearly 37% in Q4 FY25. FX-neutral GMV growth is decelerating (from 56% to ~35%), meaning the gap between USD and FX-neutral is closing — the FX headwind is easing.
Items sold — +43% YoY in Q4: This is the best commerce-leading indicator. The free-shipping threshold cut in Brazil drove Brazil items sold from +26% in Q2 FY25 to +42% in Q3 and +45% in Q4 FY25. Management delivered exactly what they promised. Items per buyer rose 15.4% to 9 per quarter — frequency expansion, not just user growth.
Unique buyers — 83.2 million, +23.6% YoY: The platform added 7.8 million new buyers in Q3 alone (surpassing the pandemic peak), and continued that trajectory in Q4 with total active buyers exceeding 80 million for the first time. MELI is not running out of addressable users.
Credit portfolio — $12.5B, +90% YoY, with improving quality: This is the most important fintech indicator. The credit book nearly doubled in 12 months while credit card NPL hit an all-time low of 4.4%. Aggregate NPL 15-90 improved from 8.2% to 6.8% over the course of FY25. The allowance ratio of approximately 25.7% of gross loans provides substantial buffer. When a credit book doubles and NPLs decline simultaneously, underwriting is working.
Advertising revenue — +67% YoY: MELI's retail media business (56% LatAm share) is a high-margin emerging revenue stream. At an estimated $1.9-2.0 billion annualized for FY26 and growing 67%, this is still only ~3% of GMV vs. Amazon's 7-8%. If MELI reaches Amazon's take rate on its $65 billion GMV base, that is a $4.5-5.2 billion revenue stream at near-pure margins. AI-driven bidding algorithms and expanded off-ecosystem inventory (Roku, HBO partnerships) are accelerating adoption.
Fintech MAU — 77.9M, +27.3% YoY: Principality improved 11 points in Brazil and 2 points in Mexico — meaning more users are making Mercado Pago their primary payment method rather than a secondary wallet. AUM surged 78% to $18.8 billion, reflecting deposit stickiness.
MELI's competitive moat is multi-layered and widening, not narrowing. Let me be specific about each competitive vector:
Shopee (Sea Limited): Has overtaken MELI in Brazilian order count but not GMV. Shopee competes in low-ASP categories (fashion, accessories, beauty) with aggressive subsidies. MELI's response — cutting the free-shipping threshold and investing $19 million in Black Friday coupons (2x Amazon's spend) — is the rational response. MELI's logistics network (95% proprietary, 82% sub-48-hour delivery, unit costs down 11% YoY in Brazil) is a moat Shopee cannot replicate without years of investment and billions of capital.
Amazon: Building out Brazilian fulfillment and investing in free-shipping programs. Credible long-term competitor but still at a fraction of MELI's LatAm scale. Amazon lacks a payments network and credit book in the region.
Nubank: The leading neo-bank in LatAm with 109 million users vs. Mercado Pago's 78 million MAU. But Nubank is a pure-play fintech without a commerce flywheel. MELI's embedded commerce data — purchase history, merchant cash flow, buyer credit behavior — provides a structural advantage in credit underwriting that Nubank cannot replicate. MELI's credit card is now the #1 card used on its own marketplace in Brazil, outpacing all third-party cards for installment transactions.
Banking license: This remains an uncertainty. Plata received a Mexican banking license ahead of MELI, reducing MELI's first-mover advantage in Mexican digital banking. In Brazil, the banking license would enable direct deposit-taking (reducing funding costs) and payroll-linked products. Every quarter of delay is a quarter of advantage foregone. There were no updates on the banking license status in the Q4 FY25 earnings call.
The Mercado Pago AI assistant now handles 87% of interactions without human intervention. Marketplace seller AI assists transactions representing 20% of GMV. This is not a company that is going to be disrupted by AI — it is deploying AI aggressively across its operations.
The CEO transition from Marcos Galperin to Ariel Szarfsztejn (effective January 1, 2026) was absorbed by the market cleanly. Galperin moves to Executive Chairman, preserving strategic continuity. Szarfsztejn, age 44, Stanford MBA, nine years at MELI, built the logistics operation from 60 to 70,000 employees. His operational focus is directly relevant to the current investment cycle. Q4 FY25 was his first quarter as CEO, and the results — 44.6% revenue growth, 10% beat on revenue consensus — suggest no execution disruption.
Management credibility is mixed but leaning reliable. They delivered on their specific promises: the free-shipping threshold cut drove exactly the acceleration they predicted, credit card cohorts older than 2 years did reach profitability, and logistics unit costs continue to decline. Where management loses points is on the opacity of the margin floor. CFO Martin de Los Santos stated, "we're not trying to optimize short-term margin" and provided no timeline for margin recovery. They explicitly said "we don't guide." For a company deliberately compressing margins by 5-6 percentage points, the refusal to frame a recovery path creates unnecessary investor uncertainty. I understand the strategic logic — they don't want to bind themselves to a margin floor that limits growth investment — but the market punishes opacity, and rightly so.
The hiring trajectory confirms the investment cycle is real and substantial: 28,000 jobs added in 2025 to reach 112,000 total (33% headcount growth), heavily concentrated in logistics.
This is where MercadoLibre becomes compelling. Let me be precise about the numbers.
Current valuation (March 31, 2026):
EV/S Multiples:
P/E Multiples:
Cohort Comparison:
For a company growing revenue at a 3-year CAGR of approximately 39%, my valuation benchmarks suggest a typical EV/S range of 7-14x. MELI trades at 2.9x. That is a discount of 59-79% from the cohort range. Even applying a generous LatAm/emerging-market discount of 40-50% to account for FX risk, credit risk, and governance premium, the implied "fair" EV/S range would be 3.5-8.4x. At 2.9x, MELI is trading below even the most conservative endpoint.
Let me stress this: I cannot find another publicly traded company at this revenue scale ($29 billion), with this growth rate (39%), with this dominant market position (#1 in its region across multiple verticals), with zero dilution, trading at an EV/S below 3x. The closest comparable in terms of business model is probably early Amazon — a commerce+payments+logistics+advertising+credit platform at scale — and Amazon has never traded at anything remotely this cheap relative to its growth rate during its scaling years.
Why the discount exists — and whether it's justified:
Margin compression (70% of the explanation). The market is pricing MELI as though 10% operating margins are the new normal. If they are, then the P/E at current margins (~41x) is fair, not cheap. But the margin compression is demonstrably deliberate: management quantified 5-6pp of investment spend. If operating margins return to 13% (the Q4 FY24 level) on a $39B FY26 revenue base, operating income would be approximately $5.1 billion vs. $3.2 billion in FY25. That is 59% operating income growth, which makes 41x trailing P/E look very different.
LatAm risk premium (20% of the explanation). FX drag is real — Argentina's 97% local growth vs. 39% USD growth illustrates the gap. Credit cycle risk is real — a $12.5 billion book in LatAm has never been stress-tested at this scale. But MELI has operated through hyperinflation in Argentina, COVID disruptions, and currency crises for 27 years and has not only survived but thrived. The LatAm discount should be 30-40%, not 60-80%.
EPS miss focus (10% of the explanation). The market penalized MELI for missing EPS consensus by 0.54inQ4FY25(11.03 vs. $11.57) while ignoring the $790 million revenue beat. This is a case of the market measuring the wrong thing. Revenue was 10% above consensus. The EPS miss is entirely explained by the investment cycle.
My assessment: At 2.9x EV/FY25 revenue and a forward PEG of approximately 0.65-0.70x, MercadoLibre is a relative bargain — and I do not use that phrase lightly. The stock would need to appreciate approximately 55-60% just to reach the midpoint of the LatAm-discounted cohort range. With 17 of 26 analysts at Strong Buy and a median price target of $2,850 (75% upside from current), the sell-side sees it too.
Credit cycle risk is the existential risk. The credit portfolio grew from $4.9 billion to $12.5 billion in twelve months. NPL at 4.4% (credit card) and 6.8% (aggregate 15-90 day) looks controlled, and the 25.7% allowance ratio provides buffer. But LatAm economies are volatile. A Brazilian recession or Argentine crisis could spike NPLs to 15%+ and generate $2-3 billion in additional provisions — consuming 1-2 years of operating income. The credit book has simply never been stress-tested at this scale. I am not dismissing this risk; I am stating that the current valuation is pricing in more credit risk than is warranted by the actual credit quality data.
Margin floor remains unknown. Management quantified 5-6pp of investment-driven compression but refused to provide a floor or a recovery timeline. The Q4 FY25 result of 10.1% showed marginal improvement from Q3's 9.8%, which is constructive but not definitive. If margins remain at 10-11% through FY26, the PEG calculus changes — it would still be below 1.0x but the margin of safety narrows. I need to see two consecutive quarters of margin stabilization or expansion before calling a trough with confidence.
FX structural drag on reported results. Argentina (19% of revenue) generates 97% FX-neutral growth vs. 39% USD — a 58-percentage-point gap. Brazil (54% of revenue) adds further BRL/USD translation risk. True underlying growth is materially higher than reported numbers, but USD investors can only spend USD returns. A BRL devaluation of 15-20% would compress reported revenue growth by 7-10pp.
Competitive escalation. Shopee is subsidizing shipping aggressively in Brazil. TikTok Shop's content-commerce model is emerging. Amazon is investing in fulfillment. MELI is responding with its own investment cycle (hence the margin compression), but an arms race between well-capitalized opponents has no guaranteed winner. MELI's logistics moat and data advantage should prevail, but at what cost?
Banking license timeline uncertainty. No updates on Brazil or Mexico banking license progress in Q4. Plata receiving the Mexican license ahead of MELI is a yellow flag for regulatory positioning. Each quarter of delay reduces MELI's first-mover advantage.
Margin stabilization signal (Q1 FY26, ~May 2026). Two consecutive quarters of stable or expanding margins would resolve the central bear argument and likely trigger a 15-25% re-rating. Q4 FY25's 10.1% vs. Q3's 9.8% is a start but not definitive.
Credit card portfolio profitability inflection. Brazilian credit card cohorts >2 years are profitable. As issuance growth normalizes and the mix shifts toward mature cohorts, NIMAL will recover. Every 100bp of NIMAL recovery on a $12.5B book is approximately $125 million in annual margin.
Banking license approval (Brazil and/or Mexico). Would unlock deposit-taking, reduce funding costs, and expand the addressable market for payroll-linked credit products. This is a step-function change in Mercado Pago's unit economics.
Advertising revenue reaching $2.5B+. At 67% growth and near-pure margins, advertising is becoming material to MELI's profitability profile. Every $1 billion in advertising revenue at 70% contribution margin is $700 million of pre-tax income — equivalent to approximately $14 per share.
FX tailwind from peso/BRL stabilization. If the FX headwind eases, the gap between local currency growth and USD growth narrows, and MELI's reported results would immediately look stronger without any operational change.
MercadoLibre is a dominant platform company growing revenue at 39% on a $29 billion base, with zero dilution, a rapidly scaling fintech operation, an emerging high-margin advertising business, and the deepest competitive moat in Latin American commerce and payments. The stock has declined 38.5% from its high, driven by deliberate margin compression that management has quantified at 5-6 percentage points of investment spend. At 2.9x EV/FY25 revenue and a forward PEG of approximately 0.65-0.70x, the valuation is, to be direct about it, disconnected from the underlying business reality.
I would characterize this as a situation where the market is pricing in a permanent margin regime at investment-cycle trough levels while ignoring: (a) the most powerful volume acceleration MELI has seen in years (items sold +43%, buyers +24%, GMV +37%), (b) a credit book that is doubling with improving credit quality, (c) an advertising business growing 67% that did not exist at meaningful scale three years ago, and (d) a secular runway in LatAm commerce and financial inclusion that is still early innings.
The condition for being wrong is straightforward: if operating margins do not recover to 12%+ within the next 4-6 quarters, and/or if credit quality deteriorates meaningfully (NPL 15-90 rising above 10%), the investment thesis is impaired. But at 2.9x EV/S, you are not paying for margin recovery — you are getting it for free.
It is rare to see quite this much valuation compression for a company that is profitable, generating cash, dominating its markets, and accelerating growth. Buy. This would be a 3-4% position in the high growth portfolio, with the concentration limit in mind given the LatAm risk premium and the credit book uncertainty. Panics tend to be indiscriminate, and this one is no different.
| Belief | Atlas Baseline | Bert Assessment | Changed? |
|---|---|---|---|
| Revenue growth sustainable >30% | Yes — 27 consecutive quarters | Confirmed — 28 quarters and reaccelerating to 44.6% | No |
| Margin compression deliberate | Yes — but no floor given | Confirmed — management quantified 5-6pp; Q4 shows marginal recovery | No |
| Credit quality manageable | Yes — NPL improving | Strengthened — NPL 4.4% credit card all-time low | Upgraded |
| Valuation reasonable at 3.9x EV/S | Yes | Substantially more attractive at 2.9x after further decline to $1,626 | Upgraded |
| Competitive moat dominant | Yes — 5/5 | Agree — logistics moat deepening, AI deployment accelerating | No |
| FX drag material | Yes — 58pp Argentina gap | Confirmed — structural but easing as ARS stabilizes | No |
| Banking license a catalyst | Yes — but delayed | Agree — Plata ahead in Mexico is a yellow flag | No |
Net vs. Atlas: I agree with Atlas's 4/5 conviction rating but believe the subsequent 19% price decline from $1,997 to $1,626 since the Atlas analysis has made the risk/reward materially more attractive. Atlas was right on the framework; the market has since given us a better price. The PEG has compressed from ~1.35x to ~0.65-0.70x — that is the kind of move that demands attention.
Data sources: SEC EDGAR 10-K FY24, 10-Q Q3 FY25; BusinessWire Q4 FY25 press release (Feb 24, 2026); Motley Fool Q4 FY25 earnings transcript; analyst consensus via TipRanks, MarketBeat; web research for competitive context.